Tata Consultancy Services (TCS), India’s largest IT services company had come out with its fourth buyback offer (till date) on March 9 and the offer will draw to a close today (March 23).
As per the latest regulatory data available on the BSE website (updated till 4.00 pm on March 22), shareholders had tendered a total of 220 million shares through this buyback.
Through this offer, TCS intends to buy back 40 million shares, or close to 1.1 percent, of its equity at a price of Rs 4,500 per share which is at a premium of over 21 percent to the closing price of Rs 3,701 on March 22.
The Rs 18,000-crore buyback by TCS which is by far the biggest offer by an IT company in India has generated strong interest from shareholders as is evident from over 5.5 times over-subscription to the issue size and there is still one more day for shareholders to subscribe to it. The offer will close at 5.00 pm today.
As per the details shared initially for the buyback entitlement, TCS had said that in the reserved category for small shareholders, the ratio of buyback will be “1 equity share for every 7 equity shares held on the record date” while in the general category for all other eligible shareholders, the ratio of buyback will be “1 equity share for every 108 equity shares held on the record date”.
Notably, this is TCS’ fourth buyback and, in the earlier three buybacks, Tata Sons was the biggest beneficiary. Experts tracking the company said citing precedence, that Tata Sons, the promoter of the company stands to gain the most from the buyback if it has participated in the offer.
In 2020, TCS bought back more than 53 million shares at Rs 3,000 a share, and 33.33 million shares were accepted under the offer including Tata Sons’ 33,325,118 equity shared. In 2017 and 2018 as well, it undertook two buybacks and the size was around Rs 16,000 crore each. At the end of September 2021, TCS had cash and cash equivalents of Rs 51,950 crore on its balance sheet.
The latest move comes after Tata Sons bought Air India from the government for Rs 18,000 crore. The firm will pay Rs 2,700 crore to the government and the rest will go to paying the debt. Tata Sons holds a 72 percent stake in TCS currently.
Experts are of the opinion that share buyback by the corporates has become the most tax-efficient way of returning money to shareholders since the government has started taxing dividends in the hands of the receivers. As per the applicable tax rates, the effective tax on dividends now comes to 30 per cent for large shareholders since it becomes part of their income. Compared to this, a company pays only 20 per cent tax on share buyback depending on the difference between the market price and the issue price.
Analysts say share buybacks also typically improve earnings per share and return surplus cash to shareholders while also supporting the stock during sluggish market conditions.
In September 2021, Infosys announced a buyback of Rs 9,200 crore while in January 2021 Wipro conducted a Rs 9,500 crore buyback. In 2018, HCL Tech had undertaken a Rs 4000 crore buyback. The premium of the offer price compared to the current market price was not so much when the buy-back was announced. Experts say that the premium became much more pronounced due to the recent correction in the market. Investors tend to take advantage of this arbitrage by buying shares from the markets and tendering them in the buyback offer.